1. When estimating cash flows, include interest expense on money expected to be borrowed to finance the investment or not?

Yes--it is an incremental expense

Yes--it is not an incremental expense

No--it is an operating cash flow

No--it is a financing cash flow

2. Kleen Corp owns equipment purchased a few years ago. A used equipment dealer has offered $80,000 to buy the equipment from the company. A start-up division of Kleen wants the equipment to use in its new business. Kleen wants to charge the start-up division for the equipment. The start-up division argues that the equipment is a sunk cost and should not be charged for it--it was bought and paid for years ago. Who is right--is this a sunk cost or something else? Select the best answer.

1) Fixed cost -- dont charge the start up

2) opportunity cost -- charge the start up

3) incremental cost - charge start division

4) sunk cost -- charge the start up division